Cash withdrawal by foreign representations will not attract tax Deducted at Source (TDS) from December 1, Income Tax Department has said.

“The Central Government after consultation with the Reserve Bank of India, hereby specifies that the provisions of section 194N of the said Act shall not apply to Foreign Representations duly approved by the Ministry of External Affairs of the Government of India including Diplomatic Missions, agencies of the United Nations, International Organisations, Consulates and Offices of Honorary Consuls which are exempt from paying taxes in India as per the Diplomatic Relations (Vienna Convention) Act 1972 and the United Nations (Privileges and Immunities) Act 1947,” a notification by the Income Tax Department said.

According to section 194N of the Act, TDS has to be deducted if a sum or aggregate of the sum withdrawn in cash by a person in a particular, fiscal year exceeds ₹ 20 lakh (if no ITR has been filed for all the three previous Assessment Years or AYs), or ₹ 1 crore (if ITRs have been filed for all or any one of three previous AYs). It is deducted by banks (private, public, and cooperative) or post offices. The tax is deducted when making any cash payment to any person in excess of ₹ 20 lakh or ₹ 1 crore (as the case may be) from his/her account maintained with such banks or post offices.

As of date, this provision does not apply to Central or state government, private or public sector banks, any cooperative bank, post office, business correspondent of any bank, white label ATM operator of any bank, Central government specified commission agents or traders operating under Agriculture Produce Market Committee (APMC) for making payment to the farmers on account of purchase of agriculture produce, authorized dealers and its franchise agent and sub-agent and Full-Fledged Money Changer (FFMC) licensed by RBI and its franchise agents.

This provision was first introduced on September 1, 2019. Under this provision, TDS will be deducted at a rate of 2 per cent on cash withdrawals over ₹ 1 crore if the person withdrawing the cash has filed an income tax return for any or all three previous AYs. However, TDS will be deducted at 2% on cash withdrawals of more than ₹20 lakh and 5% for withdrawals exceeding ₹ 1 crore if the person withdrawing the cash has not filed ITR for any of the preceding three AYs. 

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